Household debt falls to the lowest level since 1999

BarcelonaHousehold debt stood at 729 billion euros in the second quarter, 1.5% more than a year earlier, and its weight in the gross domestic product (GDP) fell to 41.9%, the lowest level since the third quarter of 1999. According to the financial accounts published by the Bank of Spain, companies also reduced the weight of their liabilities relative to the country's total wealth during this period. In this case, it stood at 1.077 trillion euros, 2% more than a year ago, but at 61.9% of GDP, the lowest level since the third quarter of 2001. The fact that the wealth generated by the State has increased more than the liabilities of families and companies means that the contribution is reduced.

This downward trend was already noted in the first quarter data. All of this coincided with the increase in savings and the fall in household and business spending during the outbreak of the COVID pandemic in 2020, and reveals an increase in the net financial wealth of households, which is obtained from the difference between assets and debts. In this case, it stood at 2.8 trillion euros, 161.8% of GDP, an increase of 12.2% and an unprecedented level in absolute terms. A major contribution to this evolution is "the revaluation of holdings in company capital (shares) and investment funds," highlights Josep Soler, founder and executive advisor of EFPA Spain (Spanish Association of Financial Advisors and Planners).

Regarding the evolution of financial asset balances, "a slight increase in capital holdings (shares) and investment funds is observed". Cash and bank deposits, the most widely used instruments by individuals, decreased. In any case, the sum of four quarters reflects a greater investment in household holdings in investment funds and in cash, bank deposits, insurance and pension funds.

In cash and deposits there are 1.167 trillion euros, 3.5% more than a year earlier. These are the financial assets where families have the most resources. Their average remuneration in August (the last month for which there is data) was 0.16%, according to data from the Bank of Spain. This is money that is losing value, since inflation is currently at 4.9%. In fact, "the evolution from deposits to other financial assets is very slow," states Soler.

In any case, the data reflect that "the Spanish economy is deleveraging, with the exception of the public sector, which shows that it is healthier". But the other side of the coin is that the downward trend in the weight of liabilities, both for households and companies, may reveal that "household consumption is being held back and business investment is losing momentum", says Soler. There is also less capacity to acquire homes and, therefore, demand for mortgages. The July data reflect a year-on-year increase of 4.9% in mortgages in Catalonia, but a decrease of 3.5% in the State as a whole. The rise in apartment prices is reflected in the average amount lent, which was also a record, according to data from the National Statistics Institute (INE).